Creating Jobs

Jul 01 2010

Listening to many media reports, you'd conclude that the Office for Budget Responsibility's forecast of private sector jobs growth had absolutely no chance of coming about.

As you will know, the OBR is forecasting that private sector jobs will grow by 2m by 2015-16, more than compensating for their projected 700,000 fewer public sector jobs. Well, actually, you may not know that because a lot of the reports have been chronically apples and pears garbled. So just to be clear, here are the actual OBR numbers clipped direct from their report:

As we can see, the OBR expects total jobs to grow from 28.89m this year (end-year) to 30.23m in 2015-16 - an overall increase of 1.34m. Since General Government jobs are forecast to fall by 710,000, that implies a growth in private sector jobs of 2.05m.

(Well, strictly speaking, it doesn't necessarily imply that, because the OBR is forecasting General Government jobs, and General Government excludes some bits of the public sector. Exclusions comprise around half a million people working for public corporations - including our nationalised banks - and also a range of contractors like GPs who work for the public sector but for historic reasons are excluded from the formal count - see this blog. But for present purposes, let's ignore these complexities and focus on the big picture.)

The question on everyone's lips is where are these 2m private sector jobs going to come from?

And the honest answer is that nobody has a clue.

But as we've blogged many times, given the necessary incentives and freedom, our economy has an excellent record of creating private sector jobs (eg see this blog). And there is absolutely no reason to think it can't do so again over the next 5 years.

So let's put the OBR forecasts into their historic perspective. The following chart shows the growth in public and private sector employment since 1992, the year of Black Wednesday and the pit of the early 90s recession (actually we had to start there because the ONS stats don't go back any further). We've spliced on the OBR's forecasts for employment growth*:

Eyeballing the chart, we can immediately see that the OBR's forecast doesn't look at all unreasonable. Yes, private sector jobs growth does return to its upward trajectory, but it's no more than we saw during the nineties and noughties - right up to crash.

And those of us who recall the early-90s recession remember very clearly how the doomsters told us we'd entered the world of permanent mass unemployment, and how Mrs Thatcher had destroyed all the real jobs, and how we'd all have to atone for the excesses of the greed-fueled 80s.

It didn't work out like that. In the subsequent 15 years the private sector created a net 4m new jobs. And yes, a few of them were privatised public sector jobs, and yes, some reflected the final blow-out of Brown's bubble. But most were real-life jobs for real-life people, many in industries that didn't even exist 20 years ago (like internet-based businesses).

The most important thing - indeed, the vital thing - the coalition government must do is to create the conditions for the private sector to create all these jobs. To recap, that means:

Cut taxes - especially business and payroll taxes

Slash red tape - including restrictions on working practices

Cut working age welfare, abolish the minimum wage - alongside a programme of welfare cuts, we need to junk the minimum wage - low productivity workers in high unemployment towns like Dewsbury simply cannot find jobs at those rates (see this blog)

Break up public sector monopolies - especially in the world's boom industries of healthcare and education - private sector providers would soon build expertise and sell it around the world

Decentralise - including giving our old bombed out industrial cities charter status (eg see this blog) - remembering that the bulk of these new jobs will be required in precisely those areas

Assuming that's what the government is planning, and assuming they can push it through, and assuming they can resist the temptation to "create" non-jobs in the so-called "green economy", 2m real new jobs should be well on the cards.

*Footnote As explained above, the OBR's employment forecasts relate to General Government rather than the whole public sector. For the purposes of the chart, we have assumed the changes will be the same. Note that for the whole period shown we've also reassigned our nationalised banks back to the private sector, where we hope and expect they will soon return.

Listening to many media reports, you'd conclude that the Office for Budget Responsibility's forecast of private sector jobs growth had absolutely no chance of coming about.

As you will know, the OBR is forecasting that private sector jobs will grow by 2m by 2015-16, more than compensating for their projected 700,000 fewer public sector jobs. Well, actually, you may not know that because a lot of the reports have been chronically apples and pears garbled. So just to be clear, here are the actual OBR numbers clipped direct from their report:

As we can see, the OBR expects total jobs to grow from 28.89m this year (end-year) to 30.23m in 2015-16 - an overall increase of 1.34m. Since General Government jobs are forecast to fall by 710,000, that implies a growth in private sector jobs of 2.05m.

(Well, strictly speaking, it doesn't necessarily imply that, because the OBR is forecasting General Government jobs, and General Government excludes some bits of the public sector. Exclusions comprise around half a million people working for public corporations - including our nationalised banks - and also a range of contractors like GPs who work for the public sector but for historic reasons are excluded from the formal count - see this blog. But for present purposes, let's ignore these complexities and focus on the big picture.)

The question on everyone's lips is where are these 2m private sector jobs going to come from?

And the honest answer is that nobody has a clue.

But as we've blogged many times, given the necessary incentives and freedom, our economy has an excellent record of creating private sector jobs (eg see this blog). And there is absolutely no reason to think it can't do so again over the next 5 years.

So let's put the OBR forecasts into their historic perspective. The following chart shows the growth in public and private sector employment since 1992, the year of Black Wednesday and the pit of the early 90s recession (actually we had to start there because the ONS stats don't go back any further). We've spliced on the OBR's forecasts for employment growth*:

Eyeballing the chart, we can immediately see that the OBR's forecast doesn't look at all unreasonable. Yes, private sector jobs growth does return to its upward trajectory, but it's no more than we saw during the nineties and noughties - right up to crash.

And those of us who recall the early-90s recession remember very clearly how the doomsters told us we'd entered the world of permanent mass unemployment, and how Mrs Thatcher had destroyed all the real jobs, and how we'd all have to atone for the excesses of the greed-fueled 80s.

It didn't work out like that. In the subsequent 15 years the private sector created a net 4m new jobs. And yes, a few of them were privatised public sector jobs, and yes, some reflected the final blow-out of Brown's bubble. But most were real-life jobs for real-life people, many in industries that didn't even exist 20 years ago (like internet-based businesses).

The most important thing - indeed, the vital thing - the coalition government must do is to create the conditions for the private sector to create all these jobs. To recap, that means:

Cut taxes - especially business and payroll taxes

Slash red tape - including restrictions on working practices

Cut working age welfare, abolish the minimum wage - alongside a programme of welfare cuts, we need to junk the minimum wage - low productivity workers in high unemployment towns like Dewsbury simply cannot find jobs at those rates (see this blog)

Break up public sector monopolies - especially in the world's boom industries of healthcare and education - private sector providers would soon build expertise and sell it around the world

Decentralise - including giving our old bombed out industrial cities charter status (eg see this blog) - remembering that the bulk of these new jobs will be required in precisely those areas

Assuming that's what the government is planning, and assuming they can push it through, and assuming they can resist the temptation to "create" non-jobs in the so-called "green economy", 2m real new jobs should be well on the cards.

*Footnote As explained above, the OBR's employment forecasts relate to General Government rather than the whole public sector. For the purposes of the chart, we have assumed the changes will be the same. Note that for the whole period shown we've also reassigned our nationalised banks back to the private sector, where we hope and expect they will soon return.